Volatility, global information, and market conditions: A study in futures markets

This study examined the behavior of return volatility in relation to the ti ming of information flow under different market conditions influenced by tr ading volume and market depth. We emphasized information flow during tradin g and nontrading periods that may represent domestic and offshore informati on in the global trading of currencies, Test results show that volatility w as negatively related to market depth; that is, deeper markets had relative ly less return volatility. Additionally, the effect that market depth had o n volatility was superseded by information within trading volume. Test resu lts focusing on the timing of information flow reveal that in low-volume ma rkets, the volatility of nontrading-period returns exceeded the volatility of trading-period returns. However, when trading volume was high, this patt ern was reversed and conformed to the observations of earlier articles. Our findings proved to be robust across time, different currency markets, and different measures of return volatility. We also observed a trend toward gr eater integration between foreign and U.S. financial markets; the U.S. mark et increasingly emphasized information from nontrading periods to supplemen t information arriving during trading periods. (C) 2001 John Wiley & Sons, Inc.